A Beginner’s Guide to Investing in Shares

Most experts agree that investing in shares is a good financial decision, but it can be pretty daunting if you’re an investment novice. Here’s how to get started.

Most financial experts agree that investing in shares is a good financial decision. Shares have a history of outperforming cash, equities and sometimes even property, and can be one of the most important ways of generating serious, long-term wealth. But investing in the stock market can be pretty daunting if you’re an investment novice. We’ve compiled some useful tips from Standard Bank’s “Beginner’s Guide to Investing” and the Johannesburg Stock Exchange to help you on your way.

The first few steps

There are two ways to invest on the stock market: you can do it on your own, or you can get someone to help you. It’s not impossible to do the former, but it does require more than a little financial acumen. Investing through a broker, on the other hand, is certainly easier. As you start this process, remember these important points:

  • Start with the money you have. You should never go into debt by borrowing money that you intend to invest. Rather put some money aside for a while and, when you’ve got enough, start looking around for someone to help you invest it.
  • Do some research before committing to a broker. Ask family and friends for their recommendations, and run a few checks online. If you have even the slightest sense that the broker you’re considering is even remotely unscrupulous, walk away.
  • Educate yourself. Take a look at the companies whose shares you’re interested in buying. Consider how many you might like to buy and whether you’re happy with the share price. Your broker will be able to help you if you’re unsure.
  • Take a long-term view. The value of stock market investing comes down to one crucial thing: compound interest. But accumulating interest upon interest takes years – and years and years.
  • Manage your expectations. Remember that your money is going to perform better at some times than at others, and that you might even lose some money before the market recovers and you’re able to gain it back.
  • Stay at it. Keep learning, keep investing, keep growing. The idea behind investing in your shares is that your money works for you, but that doesn’t mean you shouldn’t do your best to help it along.

The risks

Yes, investing in shares can be lucrative, but that doesn’t mean that wealth is guaranteed. The more aggressive your investment plan, the higher the risks you run of losing some or even all of your money. Share prices can go down, sometimes with very little warning, such as when fraud or poor governance are suddenly exposed. When the Steinhoff scandal hit at the end of 2017, the company’s share price fell by 91% in less than a week.

These risks aren’t meant to put you off, but rather to remind you to exercise caution as you find your way in the world of shares. The more you learn, the better your shares are likely to perform and the brighter your financial future is likely to look.

Sources:

Nerd Wallet: https://www.nerdwallet.com/blog/investing/how-to-invest-in-stocks/

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